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CMA Intermediate · Direct and Indirect Taxation · Salaries

Ravi Mehta, an employee of a private company, is given an interest-free loan of ₹6,00,000 on 1 April 2026 and repays nothing until the end of the year. The employer-company does not lend in the ordinary course of business. The State Bank of India rate for similar loans on 1 April 2026 is 9% per annum. The loan is not for medical treatment of a specified disease. What is the taxable perquisite for the year?

The perquisite is ₹54,000. An interest-free loan is valued at the State Bank of India rate on the loan balance, less interest actually paid by the employee. Nine percent of ₹6,00,000 for a full year gives ₹54,000, since the employee paid no interest.

  1. A₹5,400
  2. B₹27,000
  3. C₹54,000Correct
  4. D₹6,00,000

Explanation

Interest-free loans are valued at the interest at the lending rate of the State Bank of India, less any interest the employee pays. Here: ₹6,00,000 × 9% = ₹54,000 for the full year, with no interest recovered from the employee. ₹5,400 wrongly takes one month. ₹27,000 wrongly takes half a year. ₹6,00,000 confuses the loan principal with the benefit.

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